Touch-ups delaying CBOT for-profit makeover

Chicago Board of Trade officials have tinkered for months with details of the exchange's plan to become a for-profit corporation, significantly delaying a member vote on the matter.

A vote was expected in December or January, following an amended restructuring plan the Board of Trade filed in October with the Securities and Exchange Commission. The revised plan included terms of a trading rights agreement with the Chicago Board Options Exchange.

Now members will not vote until April at the earliest, following a March 28 election for directors of the board. And, even if approved, executing the restructuring itself could take months.

"I wish it had happened sooner, but we made certain improvements and refinements. And other things, like the fixed date for the election, intervened," said CBOT Chairman Nickolas Neubauer.

The delay has been worth it, he said, because the changes will create a stronger company and make the plan more palatable to members.

As part of the restructuring, the CBOT will issue separate shares for equity in the exchange and for trading rights. Among the biggest modifications are provisions to create a holding company structure and to lock together the new company's trading and non-trading shares for an indefinite period, rather than making non-trading shares available to the public on a preset schedule.

The CBOT's board approved the change regarding shares in early January, and now it needs the approval of the CBOE, which is not expected to object.

Keeping the shares in members' hands will protect the CBOT as it reworks a pact for its electronic trading partnership with the Frankfurt-based Eurex exchange and makes more technological changes.

"If people sell off [non-trading] shares, the people who buy are only going to have an interest in one thing, and that is money [going] to the exchange," said Jacob Morowitz, who runs USA Trading and is running for election to the CBOT's board.

"People who make money trading on the exchange look for other things that might cost the exchange money to create member opportunity," he said.

The revised plan needs SEC approval before it can be put to a member vote. If the restructuring is approved by members, the exchange will seek Internal Revenue Service approval.

Before implementing the plan, the CBOT board also will consider the status of a lawsuit filed by members with limited trading rights who oppose the allocation of shares proposed in the current restructuring plan.

If there is a chance the litigation will result in a different allocation, the CBOT probably will hold another vote to reflect that before going ahead with the restructuring.

"We feel over the next four months or so, there will be some certainty in that suit," Neubauer said.

Most Board of Trade members approve of the changes but they continue to have differing opinions about restructuring.

"There's a lot of disagreement on the floor about whether we should restructure at all," said Harold Lavender, a former CBOT director.

Some members are concerned that a for-profit structure would give the board and chief executive too much power, he said.

Neubauer has addressed those concerns to some degree, and Lavender said he expects that members will approve the plan after more discussion, "but it's not a lay-down. There's a lot of disagreement right now."